Asia stocks follow US shares higher, dollar steady: Markets Wrap

Stocks in Asia edged higher Wednesday following a late rally in US shares in a volatile session after Federal Reserve Chair Jerome Powell rebuffed an opportunity to tamp down investor optimism.

Equities in Australia and South Korea advanced to push a region-wide benchmark of shares higher despite fluctuating trading in Hong Kong, mainland China and Japanese shares. European stock futures climbed while US contracts were flat after the S&P 500 advanced more than 1% Tuesday. The tech-heavy Nasdaq 100 outperformed major benchmarks, climbing more than 2%.

Australian bonds dropped in early trading following declines in Treasuries on Tuesday, which partly reversed in early Wednesday trading. An index of the dollar was steady after its fall Tuesday snapped a three-day rally.

The yen steadied after rallying more than 1% Tuesday, while the Aussie edged higher after also gaining more than 1% following the Reserve Bank of Australia’s decision to increase interest rates Tuesday. Indian government bond yields and the rupee climbed after the country’s central bank raised interest rates 25 basis points as expected Wednesday.

Powell’s sober comments echoed those made after last week’s FOMC meeting, soothing traders who were expecting the Fed chief to push back on the loosening of financial conditions and Friday’s bumper jobs report. Powell highlighted that disinflation has begun, and that further hikes will likely be needed if the jobs market remains strong.

In separate comments, Minneapolis Fed President Neel Kashkari said the Fed would likely have to raise interest rates to 5.4% at the top of its target range given the strength in the US jobs market. The Fed increased rates 25 basis points last week to a band of 4.5% to 4.75%.

Jone Foley, head of FX strategy for Rabobank, increased her expectations for US interest rates to peak at 5.5% after Powell’s remarks and said in an interview with Bloomberg Television that stock market investors had brushed aside the Fed chair’s hawkish comments.

“The equity market I think wants to see something a bit move dovish and it’s latching on to the fact that yes there is plenty of economic data out there in the US that suggests that manufacturing is slowing, that goods prices are slowing and supply chains are repairing,” she said. “We have probably had peak inflation and yes headline inflation can come down further but to try to get it down to 2% could be pretty tough.”

Shares in Adani Enterprises climbed for a second day as investors reassessed the impact of the scathing report from Hindenburg Research published two weeks ago. Hedge fund and distressed debt investors have begun snapping up Adani company bonds. Ratings firm Moody’s said in a report that Indian banks’ exposure to the Adani Group is not large enough to affect their credit quality.

Elsewhere in markets, the price of oil extended gains after a 4.1% surge on Tuesday, its biggest one-day move since November, helped along by a rebound in demand from China.

Key events:

• US wholesale inventories, Wednesday
• New York Fed President John Williams is interviewed at Wall Street Journal live event, Wednesday
• US initial jobless claims, Thursday
• ECB President Christine Lagarde participates in EU leaders summit, Thursday
• Bank of England Governor Andrew Bailey appears before Treasury Committee, Thursday
• US University of Michigan consumer sentiment, Friday
• Fed’s Christopher Waller and Patrick Harker speak, Friday

Stocks

• S&P 500 futures were little changed as of 2:45 p.m. Tokyo time. The S&P 500 rose 1.3%
• Nasdaq 100 futures rose 0.1%. The Nasdaq 100 rose 2.1%
• Japan’s Topix was little changed
• Australia’s S&P/ASX 200 rose 0.4%
• Hong Kong’s Hang Seng was little changed
• The Shanghai Composite fell 0.4%
• Euro Stoxx 50 futures rose 1.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0730
• The Japanese yen was little changed at 131.14 per dollar
• The offshore yuan was little changed at 6.7886 per dollar

Cryptocurrencies

• Bitcoin was little changed at $23,217.38
• Ether rose 0.4% to $1,674.1

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.65%
• Japan’s 10-year yield was little changed at 0.49%
• Australia’s 10-year yield advanced two basis points to 3.61%

Commodities

• West Texas Intermediate crude rose 0.2% to $77.27 a barrel
• Spot gold rose 0.1% to $1 875.65 an ounce